Monday, September 22, 2014

For
each of the following situations, state whether you agree or disagree
with the financial reporting practice employed, and briefly explain the
reason for your answer.

1.

The
controller of the Dumars Corporation increased the carrying value of
land from its original cost of $2 million to its recently appraised
value of $3.5 million.

2.

The
president of Vosburgh Industries asked the company controller to charge
miscellaneous expense for the purchase of an automobile to be used
solely for personal use.

3.

At
the end of its 2013 fiscal year, Dower, Inc., received an order from a
customer for $45,350. The merchandise will ship early in 2014. Because
the sale was made to a long-time customer, the controller recorded the
sale in 2013.

4.

At
the beginning of its 2013 fiscal year, Rossi Imports paid $48,000 for a
two-year lease on warehouse space. Rossi recorded the expenditure as an
asset to be expensed equally over the two-year period of the lease.

5.

The Reliable Tire Company included a note in its financial statements that described a pending lawsuit against the company.

6.

The
Hughes Corporation, a company whose securities are publicly traded,
prepares monthly, quarterly, and annual financial statements for
internal use but disseminates to external users only the annual
financial statements.

Listed below are several transactions that took place during the second two years of operations for RPG Consulting.

Year 2

Year 3

Amounts billed to customers for services rendered

$

430,000

$

530,000

Cash collected from credit customers

340,000

480,000

Cash disbursements:

Payment of rent

88,000

0

Salaries paid to employees for services rendered during the year

148,000

168,000

Travel and entertainment

38,000

48,000

Advertising

19,000

43,000

In
addition, you learn that the company incurred advertising costs of
$33,000 in year 2, owed the advertising agency $5,800 at the end of year
1, and there were no liabilities at the end of year 3. Also, there were
no anticipated bad debts on receivables, and the rent payment was for a
two-year period, year 2 and year 3.

Required:

1.

Calculate accrual net income for both years.

2.

Determine
the amount due the advertising agency that would be shown as a
liability on the RPG’s balance sheet at the end of year 2.